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how to figure the profitability and ratios

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I need help as financial statements, math, and ratios are greek to me. I need to pull together about 200 words...not a lot on the topics below from the financial statements provided via the links. Can you please help me understand and show how to figure the profitability and ratios in a way that I can understand? we are thinking of acquiring pepsi and comparing it to its competitor...coke.

compare companies two most fiscal years:
- profitability
- management efficiency ratios
- leverage ratios



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compare companies two most fiscal years:
- profitability
- management efficiency ratios
- leverage ratios

Financial Ratios
Financial statements are useful tools for evaluating both profitability and liquidity. Financial Ratios are used to gain an understanding of a company's financial performance. Therefore, it is important that companies like PepsiCo, Inc. and Coca-Cola maintain accurate detailed financial statements to ensure that the correct financial performance is presented to the public. Unfortunately, inaccurate financial statements, such as a company's income statement and balance sheet, can negatively influence potential investors and creditors and even make the company legally liable.

Leverage ratios

The times interest earned ratio is a measure for determining if a company's earnings are sufficient to cover interest payments. This type of ratio is commonly used by creditors to determine a company's financial advantage. The times interest earned ratio formula applied to PepsiCo, Inc. and the Coca-Cola Company is as follows:
Times Interest Earned Ratio = EBIT / Interest Payments

PepsiCo, Inc. Coca-Cola Company

2005 2006 2005 2006

6,382 / 460 6,989 / 550 6,690 / 675 6,578 / 75
= 13.87 = 12.71 = 9.911 = 87.71

Coca Cola has better solvency in 2006.

The net profit margin is a profitability ratio that focuses on a firm's earnings. This ratio helps to highlight a company's ability at controlling costs by determining how efficiently revenues are converted into profit. Basically, the net profit margin ratio is used when "...you want to know the ...

Solution Summary

How to figure the profitability and ratios of companies is guided here.